Friday, March 14, 2014

Why did I surrender my LIC policies?

Many of my friends ask me why do I hate LIC policy. I am tired of explaining to them that I have never written anywhere that I hate LIC. When I ask them where did they find any such thing written by me, they say that they concluded this because I surrendered my LIC policies.
 
I surrendered my LIC policies because of my personal reasons. However, that does not mean that they are bad or good. It just did not suit my requirements. That is it. If tomorrow I stop my bank RD, would that mean that I am criticizing RD? Absolutely not.
 
So let me list down few points why I surrendered my LIC policies:
 
  1. I bought them for wrong reasons.
  2. I assumed it would give me 9-10% returns. This assumption was based on some charts which were not at all authentic. The charts assumed that I was in 30% bracket and would save my tax by that much amount. This saved amount was then added in my returns section. The bonus was also on some assumption. So there you go: too many assumptions and that too wrong.
  3. I thought 10k per month (Jeevan Tarang) was cool amount to get after my retirement. I did not think that if today my expenses are 20k, I need to extrapolate that amount by inflation, 25 years forward. With that amount calculated, 10k was miniscule. For 10k, 25 years later, I was wasting 20k today. Stupidity? Yes.
  4. I assumed that 5 lakhs was sufficient insurance amount for me. This assumption was shattered when I took 45 lakhs loan.
  5. To save tax. Funny? Yes, because when I bought them, my income was not taxable at all. Now, with 45 lakhs loan, PF, PPF my 80C is full.
  6. After paying EMI and LIC premium, I had practically no money left.
  7. I forgot that ‘I’ in LIC meant insurance and not investment
  8. I needed cash flow in my life.
 
All above reason are sufficient to clear for once and all that I never blamed or criticized LIC. I blame myself for my wrong assumptions. Damage was already done. What could be next  step? I was wondering. Then I came across Ashal’s one liner: Is it better to ampute a finger today or an arm tomorrow? I took my decision.
 
LIC policies are good for those people who are comfortable with paying premium for insurance amount needed by them. It installs discipline as you have to pay premiums or else the policy expires or gets paid up. Moreover, it has 96% of claim settlement ratio (the highest). By the way, can claim settlement ratio of endowment plan be compared with term plan? … matter for some other post…. Probably…….
 


4 comments:

  1. Great post to clarify why as an investor you took a step. I hope your friends 'll now understand. :)

    Thanks

    Ashal

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    Replies
    1. Thank you Ashal.... I hope they too calculate and check if they really need any of such policies and take decision.....
      Just to share, one of my friend asked me if he should continue his 'jeevan' policies... I told him that it does not suit his plan and he should surrender.... To this he told me that he would think on my points.... I understood that this line actually meant: I think you are giving me wrong advice..I will continue with my jeevan.....

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    2. Dear Viren, keep working what you want. People may join or may not join. Respect their choices. Over the last 9 years I have understood it. Now perfectly I'm at ease if the response is the one, you received from your friend. Just last night, one of my office colleague was discussing some thing and then pop - I do have Jeevan Saral. On questioning from me - It was a good policy and 'll provide good return. I ask, how the return 'll come to you? Can you show me the calculation? Are you aware that in this Saral policy, the returns are linked with your MSA (Maturity Sum Assured). Sorry yaar, I don't know MSA. So today he might have tried to dig info for MSA. Not sure, what's the response of his agent. :)

      Thanks

      Ashal

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    3. Yes, I agree with you.... but sometimes it I feel that my friends should not do the same mistakes that I did....
      However, like you said, we have to respect their choice...
      True...

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